Bias Propagation in Economically Linked Firms

51 Pages Posted: 4 Dec 2015 Last revised: 10 Jun 2019

See all articles by Torsten Jochem

Torsten Jochem

University of Amsterdam

Florian S. Peters

University of Amsterdam

Date Written: June 6, 2019

Abstract

We document that managerial biases spread across firms along supply chains. Supporting a causal interpretation, we show that beliefs trickle up the supply chain, not down, and that biases in supplier forecasts are only affected by customer forecasts issued before, not after, the supplier's forecast. We further find that bias propagation increases when suppliers have less confidence in their own views and when the perceived precision and importance of customer forecasts increase. Biases cause changes in the corporate policies of suppliers, suggesting that contagious beliefs in production networks contribute to fluctuations of business and financing cycles.

Keywords: Bias propagation, Managerial optimism, Production networks

JEL Classification: G4, D8, D9, G3, D2

Suggested Citation

Jochem, Torsten and Peters, Florian S., Bias Propagation in Economically Linked Firms (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=2698365 or http://dx.doi.org/10.2139/ssrn.2698365

Torsten Jochem

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

Florian S. Peters (Contact Author)

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TW
Netherlands

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